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Welcome to
Cost-Based Pricing
– Set prices relative to financial costs
(problem: defining costs)
– Activity-Based Costing
– Pricing implications of cost analysis
Traditional vs. Activity-Based Costing
Traditional costing approach
– Emphasizes expense categories (arbitrary overheads
allocation)
– May result in reducing value generated for customers
ABC management systems
– Link resource expenses to variety and complexity
of goods/services produced
– Yields accurate cost information
When looking at prices, customers care about
value to themselves, not what service
production costs the firm

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Cost based pricing